RLX Technology Inc (NYSE: RLX) is falling like a brick thrown from the Empire State Building this morning, but with no press or SEC filings from the company, many are wondering why.
It all seems to boil down to tougher regulations being put into place by the Chinese government surrounding e-cigarettes.
China’s E-Cigarette Regulations Send RLX Technology Tumbling
News broke this morning that big changes are going to hit with regard to the e-cigarette market in China. In fact, according to various breaking stories, two regulators in China plan to bring new rules to the table that govern the sale of e-cigarettes and other new tobacco products.
These new regulations are designed to bring regulations surrounding these products in line with traditional cigarette regulations, which is bad news for the e-cigarette giant, RLX Technology.
According to the reports, the Ministry of Industry and Information Technology as well as China’s State Tobacco Monopoly Administration, posted online draft regulations that could throw a wrench in the spokes of the fast growing industry.
Recently, several e-cigarette companies have been emerging in China following the overseas success of Juul, with RLX being the most successful, raising $1.4 billion in an IPO in January.
Nonetheless, this could become a painful reality for the company, considering that China’s tobacco company is controlled by a government monopoly that has strict controls surrounding who can produce and sell cigarettes.
Is This a Buying Opportunity?
This is a very tough call. The fact of the matter is that RLX Technologies is a leading player in the Chinese e-Cigarette industry. While that may bode well for the company, it may also be bad for the company.
Afterall, China’s state-owned monopoly controls the tobacco industry in the country. Why would this monopoly want to give up its control by allowing massive e-cigarette companies to play ball?
There may be an opportunity here in that there may be a partnership with the monopoly down the line. In which case, the company would likely see dramatic growth as it would become one of very few chosen by the monopoly to produce and sell e-cigarettes, but that’s a very speculative bet.
As of right now, everything is in the air, and while buying the dip could be a massive opportunity, it could also lead to significant losses.
All in all, it’s a very painful day for investors in RLX Technologies. There are few things investors hate more than uncertainty, and with the changing regulations in China, uncertainty is the name of the game. Sure, there may be an opportunity for big gains here, but jumping in at the moment is a very risky move.